Use options to generate income on Xpel shares, even if the stock stays range-bound
For investors looking to build a position in XPEL (XPEL) or generate high-yield income on a stock they wouldn’t mind owning at a discount, cash-secured puts are a good approach. For example one could sell the XPEL Inc. May 42.5 cash-secured put, sell at $1.90/contract. If XPEL stays above $42.50, you keep the premium, more than 4.4% of the strike price, in approximately 4 weeks. Worst case, if the shares should fall below the $42.50 strike price by May expiration, you will purchase the shares at an effective price of $40.60 (the strike price, less the premium collected by selling the put) or a 12% discount to the current share price. A return of 4.4% in ~4 weeks annualizes to more than 50%. If that interests you, read on. San Antonio, Texas-based XPEL Inc. is a leading provider of protective films and coatings, including automotive paint protection film (PPF), surface protection film, automotive and architectural window films and ceramic coatings. XPEL operates on an “asset-light” model, focusing on brand equity, its proprietary Design Access Program software and an extensive global distribution network. XPEL is not just a niche automotive accessory for luxury and enthusiast vehicle owners, and PPF attachment rates are still low relative to the total addressable market. The company is expanding into architectural window films and marine protection, and ceramic coatings for aircraft, reducing its sensitivity to the automotive cycle. With high returns on invested capital, forecast revenue growth of 10.5-12% over the next two years and forecast adjusted EPS growth of over 20% annualized through FYE2027, the valuation is quite reasonable at ~21.8x FY2026 estimated EPS of 2.12. Critics of XPEL point to the cyclical nature of the automotive industry. A sustained downturn in new car sales — particularly luxury vehicles — could dampen demand for PPF. Competition also comes from original equipment manufacturer-installed protection and from larger chemical conglomerates — such as 3M — that are more aggressively competing on price. Bear in mind, too, that inventory stocking/destocking at the dealer level can occasionally lead to “lumpy” quarterly earnings, causing short-term price volatility. I expect the company to leverage its DAP software to maintain installer loyalty and continue expanding its international footprint, particularly in Europe and emerging markets. In this scenario, the stock likely trades sideways to slightly higher, while continuing to grow in the low to mid-teens. By selling volatility, we capture value even if the stock remains somewhat range-bound. One important point: XPEL is a relatively small company. With a valuation of ~$1.25 billion and just over 1,300 employees, it’s actually a small-cap company. Consequently, it trades relatively low volumes in options. Lower options volumes can, and often do, mean wider bid/ask spreads. Therefore, it is critical to be patient, identify a fair mid-market price to execute a trade and use limit orders. Be mentally prepared to be assigned on the puts and purchase the shares at a discount if the share price falls over the next thirty days. If you’re wondering how I set $1.90 as a fair price to sell the puts with the stock trading at ~$46.20, I did so by first looking at the stock’s realized and implied volatility. The trailing 30-day realized volatility is ~45%, and the one-month implied volatility is ~ 65%, which translates to about $1.94 as a “fair” or “theoretical value” as I write this. It just so happens that a couple of contracts traded at $1.90 today as well, even as the market for those options was $1.40-$3.20. Another way to get similar exposure is via a “buy-write”: buying 100 shares of stock and selling an upside call on the shares to generate a little extra premium. Here, too, a bit of patience is warranted. For example, one could purchase the shares and then place a good-till-canceled limit order to sell the May $50 strike calls at, say, $1.85. Please use mid-market limit orders and wait for a fill. It is better to wait for a reasonable price and not get a fill than to hurry and execute a trade at a bad price. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. 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